Fiscal Situation of our Municipalities, part two

In our March story, we summarized a study done by the New England Public Policy Center, “Measuring Municipal Fiscal Disparities in Connecticut.” In that story, we covered how the fiscal disparity was calculated for all towns in Connecticut. Now, we’ll look at the state’s role in providing assistance to towns.

What this story covers:

Distribution of state non-school grants

What percentage of fiscal gap filled by non-school grants?

What are the fiscal disparities in absolute terms (not per capita)?

Recent trends in state grants

Equitable Aid Calculation tool

Distribution of state grants

State grants to municipalities are one way to reduce fiscal disparities across the state. However, in Connecticut, it is important to note that many of the grants are not provided as a measure to equalize fiscal disparities. These grants are aimed at providing towns with lost revenue — in the case of lost property taxes — or for specific projects.

For example, there are a number of different non-school grants made by the state, with the largest type of grant being payments-in-lieu-of-taxes (PILOT) for state-owned and private colleges and hospital property. In addition, there are Mashantucket Pequot-Mohegan grants, the Town Aid Road program, Local Capital Improvement Program (LoCIP), elderly tax relief, property tax relief for veterans and the disabled, and Department of Housing (DoH) tax abatement program (formerly of the Department of Economic and Community Development). However, statewide these grants account for a small percentage of local non-school spending — only 8% in FY 2011.

The NEPPC examined the distribution of non-school grants compared to towns municipal gap (capacity to raise revenue minus costs) to determine how well, or not, they were working as a mechanism for equalizing the disparities. A positive municipal gap means the town has revenue capacity greater than its costs, while a negative fiscal gap means the town does not have enough revenue capcity to cover its costs.

The scatterplot below shows the relationship between a town’s municipal gap and the amount of non-school grants received from the state. The x-axis (horizontal) displays the municipal gap, and the y-axis (vertical) is the value of the non-school grants.

Although the scatterplot shows in general a positive trend (in a perfect relationship between the gap and grants, the dots would display as a diagonal line), there are many communities with the same municipal gap that receive different amounts in state grants. For example, Windsor Locks had an average per capita municipal gap of $27 and received, on average, $400 in per capita grants whereas Wallingford, with a similar gap received only $35.

Chart 1: Gaps vs. Grants

Table 1: Gaps vs. Grants

What percentage of the municipal gap is filled by the state for each municipality?

A ‘net gap’ was calculated for each municipality by adding each town’s per capita grant amount from its measured municipal gap. The net gap shows the impact of the state grants on equalizing the fiscal gap. Although, as stated before, state grants are not intended for equalizing purposes, when looking at the impact by size of the gap, it does show that municipalities with larger average gaps tend to receive larger average grant awards. CTData grouped the municipalities into quintiles by the size of their per capita gap and aggregated the data to compare the original gap to the net gap. As shown in the bar chart below, it appears the grants have a modest equalizing effect.

Chart 2: Gap vs. Net Gap by Quintile

Table 2: Gap vs. Net Gap

What are the disparities in absolute terms (not per capita)?

The study by NEPCC calculated a per capita gap in order to make it easier to compare across localities. However, when thinking about regionalization and revenue and cost sharing, it is interesting to explore this data in absolute terms as opposed to on a per capita basis.

The map below sums the municipal capacity and municipal costs by Council of Governments (COGs) in absolute terms not a per capita basis. What it illustrates is that three COGs have the collective capacity to raise enough revenue to cover costs across the COG, whereas six COGs have a net deficit.

Map 1: Three COGs have a positive Fiscal Gap

Table 3: Capacity, Gaps, and Grants by COG

Recent trend in state grants

What has happened since the report was published? As shown on the map, majority of the towns saw an increase in state grants between FY14 and FY15. These are the grants that NEPPC included in their calculation of non-school state aid to towns, as listed at the beginning of the story.

Map 2: Trend in State Nonschool Grants

Equitable Aid Calculation Tool

Although most towns between FY14 and FY15 experienced an increase in the non-school grant aid that is part of this analysis, recent rfforts to balance the FY17 budget by the Governor and Legislature have included municipal aid cuts.

In Massachusetts, state municipal aid was cut across-the-board in three consecutive fiscal years. The NEPPC developed a framework for trimming local aid more equitably that utilizes the municipal gap analysis as the starting point for determining aid cuts.

CTData took this framework and applied it to the municipal gap data for Connecticut. It’s important to note that the model considers both the calculated municipal fiscal disparity (gap) and the previous year’s aid amount when determining the amount of aid to be cut. Check out the Equitable Aid Tool here.